Annual Report Board of Directors. S Sundar Ram. P Mallick. N H Mirza. S Tandon. J Templeman. Alternate to J Templeman. Chief Financial Officer

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2 Annual Report 2006 Board of Directors M G Foster G Hariharan Chairman Managing Director S Sundar Ram P Mallick N H Mirza S Tandon J Templeman S N Talwar Alternate to J Templeman B Mohan S Venkatakrishnan Chief Financial Officer Company Secretary Registered Office Plot No.13, 3 rd Main Road, Industrial Estate, Ambattur, Chennai Tel: Fax: Bankers State Bank of India UTI Bank Limited Auditors BSR & Co. Registrar & Share Transfer Agents Integrated Enterprises (India) Ltd. IInd Floor, Kences Towers, No. 1, Ramakrishna Street, North Usman Road, T.Nagar, Chennai Phone : (044) / 02 / 03 Fax : (044) / 3378 E Mail : sureshbabu@iepindia.com Contents Page Notice 2 Directors Report 6 Corporate Governance 10 Auditors Report 16 Balance Sheet 20 Profit & Loss Account 21 Schedules to the Accounts 22 Cash Flow Statement 42 Auditors Report on Consolidated Accounts 43 Consolidated Accounts 44 Statement u/s 212 of the Companies Act, Subsidiary Company 63 1 Esab India Limited Annual Report 2006

3 Notice NOTICE is hereby given that the Twentieth Annual General Meeting of the Members of the Company will be held at the Mini Hall, The Music Academy, No.168, T.T.K. Road, Chennai , on Friday the 27 April 2007 at 4.00 p.m. to transact the following business: ORDINARY BUSINESS: 1. To consider and adopt the Balance Sheet as at 31 December 2006 and the Profit and Loss Account for the year ended on that date together with the Reports of Directors and the Auditors thereon. 2. To appoint a Director in place of Mr J Templeman, who retires by rotation and, being eligible, offers himself for re-appointment. 3. To appoint a Director in place of Mr G Hariharan, who retires by rotation and, being eligible, offers himself for re-appointment. 4. To appoint Auditors to hold office from the conclusion of this Annual General Meeting until the conclusion of the next Annual General Meeting and in this regard to pass, with or without modification, the following resolution as an Ordinary Resolution: RESOLVED THAT the retiring Auditors M/s. BSR & Co., Chartered Accountants, be and are hereby re-appointed as Auditors of this Company to hold office from the conclusion of this meeting till the conclusion of the next Annual General Meeting of the Company on such remuneration as may be fixed in this behalf by the Board of Directors of the Company. SPECIAL BUSINESS: 5. To consider and, if thought fit, to pass with or without modification, the following resolution as an Ordinary Resolution: RESOLVED THAT pursuant to the provisions of Section 198, 269, 309 and 310, Schedule XIII and other applicable provisions, if any, of the Companies Act, 1956, consent of the Company be and it is hereby accorded to the appointment of Mr G Hariharan, as the Managing Director of the Company for a period of 5 years effective 1 September 2006 on the following remuneration: Remuneration 1. By way of salary, and other allowances, etc., hereinafter referred to as Remuneration subject to a ceiling of Rs.4,000,000/- per annum or such other amount as the Board may determine. 2. By way of Performance Linked Variable Pay / Long Term Incentive Compensation / Bonus / Commission on profits etc., subject to a ceiling of Rs.2,000,000/- per annum or such other amount as the Board may determine. Perquisites 3. By way of perquisites which shall be evaluated at actual cost to the Company and where it is not possible to ascertain the actual cost, such perquisites shall be evaluated as per Income Tax Rules, 1962, and as per details given below subject to a ceiling of Rs.2,000,000/- per annum or such other amount as the Board may determine. i. a. The Company shall provide rent free furnished accommodation and also pay all rents, rates and taxes. b. The Company shall reimburse expenditure incurred towards electricity, fuel charges, water charges, and all other expenses for the upkeep and maintenance of his residence. ii. Leave Travel Expenses : For self and family (which shall include spouse, dependent children and parents) in accordance with the rules applicable to the Company. iii. Reimbursement of expenditure incurred towards car driver salary. iv. Provision of assets / furnishings at the residence of the Managing Director, the valuation of which will be as per Income Tax Rules. The Company shall maintain these assets, the expenses towards which shall not be included in the computation of the limits for remuneration or perquisites as aforesaid. v. Other allowances / benefits / perquisites: Any other allowances, benefits and perquisites as per the rules applicable to the Senior Executives of the Company and/ or which may become applicable in the future and/or any other allowances, perquisites as the Board may from time to time decide. The following benefits which shall be provided to Mr G Hariharan, Managing Director shall not be included in the computation of the limits for remuneration or perquisites as aforesaid. Company s contribution to provident fund not exceeding such percentange of the salary as may be fixed by the Central Government from time to time and to gratuity, superannuation fund as per the rules of the Company. The company shall also provide and maintain a car and telephones for official use. Payment of club fees for two clubs and all actual entertainment expenses at the club reasonably incurred in or about the business of Company shall be reimbursed. Medical expenses for self and family, which shall include spouse, dependant children and parents, at actuals shall be reimbursed. Mr G Hariharan, Managing Director may also avail leave in accordance with the policies applicable to Management Staff 2 Esab India Limited Annual Report 2006

4 Notice of the Company. He shall be entitled to encashment of leave standing to his credit as per applicable policies for Management Staff. The Managing Director shall also be a beneficiary of the Group Medical Insurance and the Personal Accident Insurance Policies taken by the Company for the Management Staff of the Company. The Managing Director shall not be eligible to receive sitting fees for attending meetings of the Board of Directors or any Committee thereof. The aggregate of the remuneration and perquisites as aforesaid in any financial year shall not exceed the limits prescribed from time to time under Sections 198 and 309 of the Companies Act, 1956 read with Schedule XIII to the said Act or any statutory modifications or re-enactment thereof for the time being in force, or otherwise as may be permissible at law. RESOLVED FURTHER THAT where in any financial year, the Company has no profits or its profits are inadequate, Mr G Hariharan, Managing Director subject to the approval of a Remuneration Committee of the Directors of the Company shall be paid such remuneration not exceeding the ceiling limits specified under Part A of Schedule XIII of the Companies Act, RESOLVED FURTHER THAT the Board of Directors be and is hereby authorized to do all such acts, deeds, matters and things as may be deemed necessary to give effect to the above resolution. By Order of the Board Mumbai, 1 March 2007 S Venkatakrishnan Company Secretary NOTES: 1. The explanatory statement required pursuant to Section 173(2) of the Companies Act, 1956 in relation to Item 5 above is annexed hereto. 2. A Member entitled to attend and vote at the Meeting is entitled to appoint one or more proxies to attend and vote instead of himself on a poll only and a proxy need not be a Member. Proxies, in order to be effective, must be addressed to the Company Secretary and received at the Registered Office of the Company at Plot No.13, 3 rd Main Road, Industrial Estate, Ambattur, Chennai not less than forty-eight hours before the scheduled start of the Meeting. 3. The Register of Members and Share Transfer Books of the Company will remain closed from 23 April 2007 to 27 April 2007 (both days inclusive). 4. Queries on the Accounts and operations of the Company, if any, may be sent to the Company at its Registered Office (and marked for the attention of the Company Secretary) at least seven days in advance of the Meeting. 5. Members holding shares in physical form are requested to advise any change of address immediately to the Registrar and Share Transfer Agent, viz. M/s. Integrated Enterprises (India) Limited, IInd Floor, Kences Towers, No.1, Ramakrishna Street, North Usman Road, T. Nagar, Chennai Attention Mr Suresh Babu, General Manager. 6. Members are requested to bring their copies of the Company s Report and Accounts for the year ended 31 December 2006 to the Meeting. 7. Members holding shares under identical names (in the same order) in more than one Folio are requested to write to the Company Secretary at the Registered Office of the Company, enclosing their share certificates, to enable consolidation of their holdings into one Folio. 8. Members who hold shares in the physical form can nominate a person as nominee in respect of all the shares held by them singly or jointly. Members who hold shares in a single name are advised, in their own interest, to avail of the nomination facility by completing and submitting Form 2B. Blank forms will be supplied by the Company s Registrar & Share Transfer Agents on request. Members holding shares in the dematerialized form may contact their Depository Participant for recording the nomination in respect of their shares. 9. Pursuant to Section 205C of the Companies Act, 1956 all unclaimed / unpaid dividend, debenture interest as well as principal amount of debentures remaining unpaid or unclaimed for a period of seven years from the date they became due for payment have been transferred to the Investor Education and Protection Fund ( the Fund ) established by the Central Government. Members / Debentureholders are hereby informed that the Company is statutorily required to transfer to the Fund all unclaimed / unpaid dividend, debenture interest and principal remaining unpaid/unclaimed for a period of seven years from the date they become due for payment and once such amounts are transferred to the fund, no claim of the shareholders / debentureholders shall lie against the Company or the Fund. For the information of the shareholders, it is hereby notified that the following amounts will be due for transfers to the fund upto 31 December a. Debenture Interest paid on 31 March 2000 b. Debenture Redemption on 31 March Esab India Limited Annual Report 2006

5 Notice Shareholders / debentureholders who have not yet encashed their dividend warrants / interest warrants are requested to send the warrants to the Company immediately for revalidation. 10. As required under Clause 49 (IV)(G) of the Listing Agreement, given below are the details of Directors, retiring by rotation and eligible for re-appointment: Mr J Templeman Mr J Templeman is a Bachelor of Arts (Oxford University) and Master of Arts (Oxford University). He is an Associate Member of the Institute of Chartered Accountants in England & Wales. He worked for 17 years with Price Waterhouse, London, in various capacities rising to Salaried Partner. He also worked for a short time at Charter plc., as Head of Investor Relations. At present he is the Managing Director of ESAB Global. He is a Director of ESAB Holdings Limited, ESAB Group Russia Limited, ESAB Russia Limited, ESAB Hungary Limited, Electrudos SA, Conarco Alambras Y Soladiades SA, ESAB Holding SRO, Fortunate Gestao E Servicos SA, ESAB Industria E Commercio, ESAB Shanghai China Trading Ltd, ESAB SeAH and ESAB SVEL. Mr G Hariharan Mr G Hariharan is a Metallurgical Engineer having graduated from I.I.T. Bombay. He has more than thirty years experience having worked in various capacities at W.G.Forge & Allied Industries Ltd., M N Dastur & Co. (P) Ltd., Kirloskar Consultants Ltd., and Philips India Ltd., before joining the Company in He was responsible for Sales, Marketing and Exports and laterally, the Welding Consumables Division before his appointment as Wholetime Director with effect from 7 January He is the Chairman of Esab Welding & Cutting Systems Limited. 4 Esab India Limited Annual Report 2006

6 Notice Explanatory Statement pursuant to Section 173(2) of the Companies Act, Item 5 Mr G Hariharan, was appointed as the Whole time Director of the Company by the shareholders of the Company for a period of five years at the Annual General Meeting of the Company held on 14 May Consequent to Mr S Sundar Ram, the Managing Director of the Company assuming other responsibilities in the ESAB Group, Mr G Hariharan was elevated as the Managing Director of the Company with effect from 1 September 2006 by the Board of Directors vide their resolution dated 16 May 2006 subject to the approval of the shareholders. The approval of the shareholders is now sought for appointment of Mr G Hariharan, as the Managing Director for a period of 5 years with effect from 1 September 2006 on the remuneration set out in the resolution contained in the Notice. Subsequent to Mr G Hariharan, assuming higher responsibilities as the Managing Director of the Company, the Company has achieved very significant growth in both sales and profitability and has maintained its leadership position in the industry at the end of Considering the above and also taking into account the future prospects of the Company and in line with the remuneration packages to the Managing Directors of similar such manufacturing industries, the Resolution envisages fixing an overall ceiling limits of remuneration, perquisites and incentives payable to Mr G Hariharan, subject to the approval of the shareholders. Further the power to enhance the salary, perquisites and incentives payable to the Managing Director from 1 September 2006 till the end of his tenure is sought to be delegated to the Board, subject to the overall ceiling limits specified in the resolution. The terms of remuneration as set out in the Notice may be treated as an abstract under Section 302 of the Companies Act, Your Board recommends the passing of this Ordinary Resolution. None of the Directors except Mr G Hariharan, is interested in this item. Mumbai, 1 March 2007 By Order of the Board S Venkatakrishnan Company Secretary 5 Esab India Limited Annual Report 2006

7 Directors Report Your Directors herewith present the Twentieth Annual Report together with the audited accounts of the Company for the year ended 31 December FINANCIAL RESULTS Rs. mio. Rs. mio. Sales and other income 2, ,435.2 Profit on sale of leasehold rights 45.3 Earnings before interest, tax and depreciation Interest and Finance Charges (12.7) (13.3) Depreciation (47.1) (44.6) Profit before taxation Taxation (221.6) (184.7) Profit for the year Profit before taxation increased by Rs.66.5 million over the previous year even though the corresponding amount in 2005 included non-recurring income of Rs.45.3 million. DIVIDEND Your Board of Directors has not proposed any dividend for the year. However, it proposes to consider distribution of an interim dividend, shortly after the approval of this report. MANAGEMENT DISCUSSION AND ANALYSIS The company continued to be the leader in its industry, achieving highest sales and profit ever. The management looks to the future with confidence, even though there is increasing competition from domestic and international manufacturers. During the year, the product range and production capacities were expanded. Products based on technology transfers from ESAB group companies were launched and have been well received by users. The new plant at Irungattukottai and a new MIG line at Khardah went into commercial production. The company is also setting up production capacity at Irungattukottai for Flux Cored Wires for which it has entered into technology transfer agreements with ESAB group companies. The above project and additional capacities on some of our existing lines are scheduled to go on-stream in In 2006, your Company entered into a joint venture with the Esab group for engineering design and related services. A new Company, Esab Engineering Services Limited, was incorporated for this purpose. Your Company has invested Rs.1.25 million in this joint venture for 24.9% of the equity. INCOME STATEMENT The continuing thrust on infrastructure and growth in other steel based segments of industry provided impetus for higher volumes of your Company s products. Gross sales grew by 20.5% over In quantity terms, the growth in Consumables was about 12%. The equipments division benefited from new products and capacities to achieve growth in excess of 40% in 2006 resulting in it growing its share in the total business from 23% in 2005 to 27% this year. Due to a greater growth in the low end variants of Consumables, there was a decline in the average realization of most of its categories, other than on basic stick electrodes whose average realization grew slightly. The segment-wise financial performance is given in Note 19 of Schedule P of Notes to Accounts. While the Consumables segment margins were stable in 2006, there was a drop in Equipment margins mainly due to start-up expenses on the new project and higher import content in its new products. Consumption of imported raw material increased from Rs.67 million in 2005 to Rs.228 million this year. Metal prices, especially of non-ferrous metals and chemicals, continued to rise significantly through the year. This, along with the higher import content, resulted in materials consumption being 58.9% of sales as compared to 55.9% in The Company is working on indigenisation and vertical integration plans to counter the increase in input costs. The change in product mix was the main reason for the company turning from an earner of foreign exchange in 2005 (a net of Rs.22 million) to a net outgo in 2006 of Rs.162 million. Other income increased from Rs.53.6 million to Rs.57.8 million primarily due to increase in scrap sales arising from better realizations and growth in volumes. Interest income was lower by about Rs.7 million due to a lower cash float during the year after dividend and capital expenditure payouts aggregating to nearly Rs.600 million. Personnel costs were at Rs.176 million representing a 9.5% increase over These costs were 5.4% of sales, compared to 5.9% in The reduction in percentage terms is due to higher productivity and a reduction of Rs.24.8 million in the cost of retirement benefits. The reduction in retirement benefits costs was due to increase in interest rates as also a reduction in the number of employees covered under the defined benefits pension scheme. Charge on account of rates and taxes is lower because of a non recurring provision for disputed sales taxes in The charge for excise duty in 2006 (schedule N) is a credit of Rs.7 million because of a reduction in inventories at the year end compared to those at the end of Esab India Limited Annual Report 2006

8 Directors Report Interest and finance charges were lower in 2006 due to foreclosure of external commercial borrowings in that year. Depreciation for the year was marginally higher due to capitalization in 2006 of the Irungattukottai project and of know how fees of Rs.27.3 million on items of which commercial production has commenced. The effective tax rate for 2006 was higher at 34.2% compared to 31.8% in 2005 due to significant tax exempt capital gains in BALANCE SHEET The company has added Rs million to its Gross Fixed Assets. Significant among them were the Irungattukottai manufacturing facility, MIG line at the Khardah Factory and technology licence fees paid. Capital Work in Progress at the end of the year was Rs.65.6 million largely representing ongoing project work on the Flux Cored Wire project at Irungattukottai. Investments at the end of the year represent short term cash surplus deployed with mutual funds and also investments in Bonds for capital gains exemption. Inventory at the end of 2006 was lower at Rs million as compared to Rs.260 million at the end of 2005 inspite of a significant growth in volumes in Receivables in terms of days to sales were higher as compared to 2005 due to growth in Equipments business which involves longer credit terms. Other current assets, loans and advances increased mainly on account of higher balances with retirement benefits trusts, advances to suppliers and dues from the joint venture for engineering services for start-up costs. CASH FLOW Liquid funds reduced by Rs.355 million during the year, due to dividend payout of Rs.397 million, foreclosure of borrowings involving an outgo of Rs.113 million and capital expenditure of Rs.196 million. OUTLOOK, OPPORTUNITIES AND THREATS The outlook for the Company in the short term looks reasonably favourable based on forecasted macro economic parameters. Volatility of metal prices continues to be of concern. The expanding market and shift towards better technologies by users of our products provide opportunities for the company to grow. Competition from low-end domestic and international manufacturers including new entrants, poses, a threat to the company s profitability. Further, the growth in employment opportunities means that the company faces the threat of attrition of trained personnel. The lease for the Kolkata Equipment Factory has expired and the Company s efforts to negotiate a renewal on reasonable terms with the lessor, the Kolkata Port Trust, continue. INTERNAL CONTROLS Internal controls are evaluated on an ongoing basis by the Internal Auditors. Their reports are reviewed at Audit Committee meetings. Internal auditors also report on the implementation of recommendations. The reviews by Internal Auditors cover the various manufacturing and office locations. The scope of their work includes internal controls on accounting, and for efficiency and economy of operations. RELATED PARTIES Note 20 of Schedule P to the Accounts sets out the nature of transactions with related parties. Transactions with related parties are carried out at arm s length. Their details are placed before the Audit Committee. FINANCE The Company s relationships with its bankers remained cordial throughout the year. Surplus funds were placed in short term deposits with banks and in debt / liquid schemes of mutual funds pending deployment for operational and capital servicing needs. SUBSIDIARY Esab Welding & Cutting Systems Limited (EWCS) ceased operations in June 2004 pursuant to the transfer of its operations to the Company s Equipment Factory at Taratala. The Directors Report and the Audited Accounts for the year ended 31 December 2006, along with the Report of the Auditors and the statement required under Section 212(1)(e) of the Companies Act, 1956 for EWCS are appended. ENVIRONMENT AND SAFETY The Company is committed to industrial safety and environment protection. Four of our manufacturing units hold ISO : 1996 certification. With the high levels of awareness created amongst the employees on environment and safety, there have been no reportable accidents in the factory during the year. DIRECTORS RESPONSIBILITY STATEMENT To the best of their knowledge and belief, and according to the information and explanations obtained by them, your Directors make the following statement in terms of Section 217(2AA) of the Companies Act, Esab India Limited Annual Report 2006

9 Directors Report 1. In the preparation of the annual accounts for the year ended 31 December 2006, the applicable accounting standards have been followed; 2. The accounting policies listed in Schedule P to the Notes to Accounts have been selected and applied consistently and judgements and estimates that are reasonable and prudent made so as to give a true and fair view of the state of the affairs of the Company at the end of the financial year on 31 December 2006 and of the profit of the Company for that year; 3. Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; 4. The annual accounts for the year ended 31 December 2006 have been prepared on a going concern basis. CAUTIONARY STATEMENT Certain statements in this Directors Report may constitute forward looking statements within the meaning of applicable laws and regulations. Actual results may differ materially from those either expressed or implied in this Report. ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE The information required under Section 217(1)(e) of the Companies Act, 1956 read with Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, is given in the Annexure and forms part of this Report. DIRECTORS Mr G Hariharan who was hitherto the Whole time Director of the Company, took over as the Managing Director of the Company effective 1 September 2006 on the previous incumbent, Mr S Sundar Ram moving to other responsibilities in the Esab group. The approval of the members of the company is sought for the appointment of Mr G Hariharan as Managing Director for a period of 5 years effective 1 September 2006 and for payment of remuneration for his tenure as Managing Director, in this annual general meeting. In accordance with the provisions of Article 130 of the Company s Articles of Association, Mr J Templeman and Mr G Hariharan, retire by rotation at the forthcoming Annual General Meeting and, being eligible, have offered themselves for re-appointment. The details as required under Clause 49 of the Listing Agreement regarding these two directors are part of the Notice calling the Annual General Meeting. AUDITORS BSR & Co., Chartered Accountants, retire as Auditors of the Company at the forthcoming Annual General Meeting and are eligible for re-appointment. The Directors recommend that BSR & Co., be appointed as the Company s auditors to hold office until the conclusion of the next Annual General Meeting. The company has received confirmation that their appointment will be within the limits prescribed under Section 224(1B) of the Companies Act, PERSONNEL At the end of December 2006 the Company had 708 employees as against 632 at the end of Wage settlements have been signed with the employee unions at Kolkata and at Nagpur. The company strives in its HR initiatives to create an environment suitable for a high performance work culture. Efforts are on to impart and take care of the training requirements of all the employees in the company to make the employees perceive that the working climate is truly conducive for performance and growth. No employee has drawn remuneration during 2006 in excess of the limits specified under the Companies (Particulars of Employees) Rules, Accordingly, particulars of employees remuneration prescribed under Section 217(2A) of the Companies Act, 1956 is not attached to this Report. CORPORATE GOVERNANCE In terms of Clause 49 of the Listing Agreement with the stock exchanges a Corporate Governance Report is made part of this Annual report. In compliance of Section 292A of the Companies Act, 1956 and with the Listing Agreement, an Audit Committee consisting of three Independent Directors and one non-executive Director has been constituted. The company also has an Investors Grievance Committee consisting of three Independent Directors and one non-executive Director. A certificate from the statutory auditors of the Company regarding compliance of the conditions stipulated for Corporate Governance under Clause 49 of the Listing Agreement is attached to this report. The declaration by the Managing Director addressed to the members of the company pursuant to Clause 49 of the Listing Agreement regarding adherence to the Code of Conduct by the Members of the Board and by the Members of the Senior Management Personnel of the Company is also attached to this Report. ACKNOWLEDGEMENTS Your Directors wish to place on record their appreciation of the continued confidence and support extended to the Company by its customers, suppliers and shareholders as well as the Company s bankers and financial institutions. Your Directors also wish to place on record their appreciation of the efforts and contribution during 2006 of the Company s employees. For and on behalf of the Board M G Foster Mumbai, 1 March 2007 Chairman 8 Esab India Limited Annual Report 2006

10 Directors Report ANNEXURE TO THE DIRECTORS REPORT Statement under Section 217(1)(e) of the Companies Act, 1956 read with Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 and forming part of the Directors Report for the year ended 31 December A. CONSERVATION OF ENERGY Wind driven ventilation of plant which also enables the plant to be well lit and results in power consumption being nil Introduction of new energy saving lamps instead of halogen lamps on the shop floor Switching off the scrubber section during work breaks Continually maintaining unity power factor B. TECHNOLOGY ABSORPTION Introduction of Variable Frequency Drives in place of Proportional Invariable gearboxes. Introduction of AC Induction motors in place of DC motors Introduction of Thyristor controls for all static oven heaters Introduction of newer products with TOT from Brazil, Sweden and Poland Newer technology for SAW Flux completed and is in progress for SMAW Electrodes Development of new variants of special consumables for meeting specific customer requirements. C. FOREIGN EXCHANGE The company exports its products to Singapore, Bangladesh, Sri Lanka, Uganda, Tanzania and the Middle East. During the year, the total foreign exchange expenditure amounted to Rs million (which includes Rs.254 million for the import of raw materials, components and capital goods and Rs.25.9 million towards expenditure in foreign currency). Foreign exchange earnings during the year were Rs million resulting in net foreign exchange outflow of Rs.162 million for the year. For and on behalf of the Board Wire Feedability testing technology acquired from ESAB Vamberk Mumbai, 1 March 2007 M G Foster Chairman 9 Esab India Limited Annual Report 2006

11 Corporate Governance Your Company is committed to good Corporate Governance in all its activities and processes. The Board of Directors shall endeavour to create an environment of fairness, equity and transparency in transactions with the underlying objective of securing long-term shareholder value, while, at the same time, respecting the rights of all stakeholders. BOARD OF DIRECTORS In terms of the Corporate Governance philosophy all statutory and other significant material information is placed before the Board of Directors to enable it to discharge its responsibility of strategic supervision of the Company as trustees of the Shareholders. The Board of Directors currently consists of seven members. Other than the Managing Director, all the other members of the Board are non-executive directors, including three who are independent directors. During the year 2006, five Board Meetings were held on 22 February 2006, 28 April 2006, 27 July 2006, 26 October 2006, 7 December 2006 and not more than four months elapsed between any two meetings. Particulars of the Directors attendance at Board Meetings and at the last Annual General Meeting and particulars of their other company directorships and committee memberships are given below: AUDIT COMMITTEE The terms of reference of the Committee are governed by a Charter, cover all applicable matters specified under Clause 49 of the Listing Agreements dealing with Corporate Governance and Section 292A of the Companies Act, The members of the committee are: Mr N H Mirza (Chairman) Mr P Mallick Mr S Tandon Mr J Templeman The composition of the Audit Committee meets the stipulated minimum number of independent directors. The Company's chief financial officer, its statutory auditors and its internal auditors are permanent invitees to the Committee's meetings. The company secretary is secretary to the Committee. The quorum for Committee meetings is two members or one third of the total strength of the Committee, whichever is higher. As required under Clause 49 of the Listing Agreement, there were four meetings of the Audit Committee held during the year on 21 February 2006, 28 April 2006, 27 July 2006 and 26 October 2006 and not more than four months elapsed between any two meetings. Director Directorship Attendance Other Membership Board AGM Directorships $ of other Committees Mr M G Foster Non-Executive Nominee, 5 Yes Nil Nil Esab Holdings Limited Mr G Hariharan Executive 5 Yes 1 Nil Mr P Mallick Independent & 5 Yes 4 5 (of which 2 as Non-Executive Chairman) Mr N H Mirza Independent & 5 Yes 4 3 (of which 1 as Non-Executive Chairman) Mr S Sundar Ram Non-Executive 4 Yes 1 Nil Nominee, Esab Holdings Limited Mr S Tandon Independent & 4 Yes 2 4 Non-Executive Mr J Templeman Non-Executive 4 Yes Nil Nil Mr S N Talwar* Non-Executive 1 Yes 14 9 (of which 4 as Chairman) *Alternate to Mr J Templeman $ Excluding Alternate Directorships and Directorships of Private Limited Companies and Foreign Companies, wherever applicable. 10 Esab India Limited Annual Report 2006

12 Corporate Governance The number of meetings attended by each member of the Audit Committee is as follows: Mr N H Mirza (Chairman) 4 Mr P Mallick 4 Mr S Tandon 4 Mr J Templeman 3 REMUNERATION COMMITTEE The Company has not set up a Remuneration Committee (which is not mandatory). The remuneration of Directors is determined and approved by the Board of Directors and is subject to the approval of the Company in general meeting and of other applicable regulatory and statutory authorities. Interested Directors withdraw when their remuneration is being considered by the Board. During the year under review, Mr S Sundar Ram, who was Managing Director of the Company till 1 September 2006, received remuneration (including commission) aggregating to Rs.3,681,206 and Mr G Hariharan, who was, till that date a Wholetime Director, was appointed as Managing Director. He received remuneration (including commission) aggregating to Rs.3,421,174 (excluding pension and gratuity contributions) the details of which are set out in note 14 to Schedule P of the Accounts. The Company has made an overall provision for performance linked incentives aggregating to Rs.14 million, the employee-wise allocation of which shall be finalized subsequently. The Company has not granted any stock options to any of its Directors or employees during the year under review. The details of payment of remuneration to Non-Executive Directors during 2006 are as follows: Non-Executive Sitting Fees Commission Directors Paid (in Rs.) (in Rs.) Mr M G Foster 50,000 Mr J Templeman 40,000 Mr S Sundar Ram 600,000* Mr N H Mirza 138, ,000 Mr P Mallick 98, ,000 Mr S Tandon 96, ,000 Mr S N Talwar 50, ,000 * The commission paid to Mr S Sundar Ram, pertains to the period when he was Managing Director of the Company. The payment of Commission to Non Executive Directors up to 1% of the profit as calculated under the applicable provisions of the Companies Act, 1956 was approved by the Members at the Annual General Meeting held on 28 April The approval was based on their roles and responsibilities and their contributions to the Company in their respective capacities. Based on the above principle, Commission has been individually determined for each Non-executive Director based on their varying commitments of time and effort to the board and to its Committees. Commission to Wholetime Directors is based on their individual performances and their respective contributions to Company's performance. During the year, the Company paid professional fees (including advances) amounting to Rs.1,012,500 to Crawford Bayley & Co., Advocates and Solicitors, a firm in which Mr S N Talwar, Alternate Director to Mr J Templeman, Director of the Company, was a partner till 1 April 2006 and continued as advisor till 31 December None of the Directors holds any equity shares of the Company, except for Mr S N Talwar who holds 1440 equity shares as on 31 December INVESTORS GRIEVANCE COMMITTEE The Investors' Grievance Committee functions under the Chairmanship of Mr S Tandon, a Non-executive Independent Director. The other members of the Committee are Mr N H Mirza, Mr P Mallick and Mr J Templeman. Mr S Venkatakrishnan, Company Secretary is the Compliance Officer of the Company. The Directors review the position on all major investors' grievances at meetings of the Board of Directors and the Investors' Grievance Committee. During the year, the Company received 158 complaints from shareholders. All the complaints were responded to as per applicable guidelines and regulations. As at 31 December 2006 there were no pending share transfers (other than transfers sent under objections). GENERAL BODY MEETINGS The last three Annual General Meetings were held as per details given below: Year Date Time Venue May PM Bombay House Auditorium, Bombay House, Mumbai June PM Walchand Hirachand Hall, Indian Merchants Chamber, Churchgate, Mumbai April PM Mini Hall, The Music Academy No. 168, T.T.K. Road Chennai Esab India Limited Annual Report 2006

13 Corporate Governance All the proposed resolutions, including special resolutions, were passed by the shareholders as set out in their respective Notices. No resolutions were put through postal ballot during the last year and the Company is not considering the introduction of a postal ballot for any resolution this year as well. CODE OF CONDUCT The board of directors has adopted codes of conduct, applicable to directors and to employees of the Company which are posted on the Company's website. The Company has obtained declarations from all its directors and senior management personnel affirming their compliances with the applicable code of conduct. The declaration by the Managing Director under Clause 49 affirming compliance of the code of conduct by all members of the Board and the Senior Management Personnel for the year ended 31 December 2006 is attached to this corporate governance report. DISCLOSURES The particulars of transactions between the Company and its related parties, as defined in Accounting Standard 18, is set out in Note 20 to Schedule P to the financial statements. There have been no instances of non-compliance by the Company. During the last three years no penalties or strictures have been imposed on the Company on any matter related to the capital markets by stock exchanges or SEBI or any statutory authority. The Company has complied with the requirements of the revised clause 49 of the Listing Agreement. To enhance standards on corporate governance and strengthen controls, the Company has setup a whistleblower policy which is available for viewing on the Company's website and in terms of such whistleblower policy, it is affirmed that the employees have been given free access to the audit committee. COMMUNICATION The Company's quarterly financial results, after their approval by the Board of Directors, are promptly issued to all the Stock Exchanges with whom the Company has Listing arrangements. These financial results, in the prescribed format, are published in leading local and national newspapers; viz. "The Business Standard" in English and in "Dhina Bhoomi" in Tamil and are also posted on the Company's website and also on the Electronic Data Information Filing and Retrieval System at A Management Discussion and Analysis Report, forming part of the Directors' Report, is included in the Annual Report. GENERAL SHAREHOLDER INFORMATION AGM : Date, 27 April 2007 at 4.00 pm Time & Venue The Music Academy Mini Hall, No. 168, T.T.K. Road, Chennai Financial Year January to December Approval of QE 31 Mar 2007: Last week, Apr 2007 financial results HY 30 Jun 2007: Last week, Jul 2007 proposed QE 30 Sep 2007: Last week, Oct 2007 YE 31 Dec 2007: Last week, March 2008 Dates of Book Closure: Listing on Stock Exchanges: Stock Code 23 April 2007 to 27 April 2007 (both days inclusive) The Bombay Stock Exchange Limited. The National Stock Exchange of India Limited. The listing fees for the financial year were duly paid to the above stock exchanges. Physical The Bombay Stock Exchange Limited : The National Stock Exchange of India Ltd. : ESABINDIA Demat ISIN : INE284A01012 Stock Market Price* Data & Stock Performance Mumbai National BSE Sensex 2006 High Low High Low High Low Rs. Rs. Rs. Rs. Rs. Rs. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec * Share prices are rounded off to the nearest rupee. 12 Esab India Limited Annual Report 2006

14 Corporate Governance ESAB Share Price Vs. BSE SENSEX ESAB Shareprice BSE Sensex , , , , , , , , , Jan Jan Feb Feb Mar Mar Apr Apr May May Jun Jun Jul Jul Aug Aug Sep Sep Oct Oct Nov Nov Dec Dec Dec-06 6, Registrar and Transfer Agents Share Transfer System Integrated Enterprises (India) Ltd. IInd Floor, Kences Towers No.1, Ramakrishna Street, North Usman Road, T.Nagar, Chennai Contact Person: Suresh Babu K. General Manager Tel.: , Fax: , Shareholders are requested to correspond with the share transfer agent for transfer / transmission of shares, change of address, queries pertaining to their shareholding, dividend etc., at their address given above. Share transfers are processed and approved, subject to receipt of all requisite documents. The Company seeks to ensure that all transfers are approved for registration within the stipulated period. With a view to expediting the approval process, the Board of Directors has severally authorized the Chairman of the Board of Directors, the Chairman of the Investors Grievance Committee and the Company Secretary to approve the transfer of shares. Distribution of shareholding as on 31 December 2006 Number % of Shareholding Shareholders of Shares total Up to ,807 1,777, , , , , , , and above 79 11,583, Total 15,154 15,393, Esab India Limited Annual Report 2006

15 Corporate Governance Shareholding pattern as on 31 December 2006 Number % of of Shares total Esab Holdings Limited 5,743, Mutual Funds & UTI 2,959, Banks, Financial Institutions and Insurance Companies 26, Foreign Institutional Investors 1,131, Corporate Bodies 1,020, NRIs/OCBs 156, Indian Public 4,356, Total 15,393, Dematerialisation As on 31 December 2006, 96.44% of the total paid-up equity capital was held in dematerialised form. The Company has entered into agreements with National Securities Depository Limited and Central Depository Services (India) Limited to offer shareholders the option to dematerialise their shares with these depositories. The ISIN number of the company's shares in demat form is INE284A Outstanding GDRs /ADRs None Plant Locations Plot No.13, 3rd Main Road, Industrial Estate, Ambattur, Chennai B.T. Road, Khardah, P.O. B.D. Sopan, North 24 Parganas, Kolkata B-28, MIDC Industrial Area, Kalmeshwar, Nagpur P-41, Taratala Road, Kolkata G22 Sipcot Industrial Park, Irungattukottai, Sriperumbudur Taluk, Kancheepuram, Chengalput District, Tamilnadu Address for Company Secretary correspondence Esab India Limited Plot No.13, 3rd Main Road, Industrial Estate, Ambattur, Chennai Tel : Fax : svk@esabindia.com NON-MANDATORY DISCLOSURE The non mandatory requirements have been adopted to the extent and in the manner as stated under the appropriate headings detailed below: a. Chairman s Office The Company has not implemented this non mandatory requirement. b. Remuneration Committee The Board has not set up a remuneration committee as the need for the same has not arisen. c. Shareholder rights The quarterly and half-yearly results of the Company are published in newspapers and on the Company's website and also on the Electronic Data Information Filing and Retrieval System at These results are not sent to shareholders individually. d. Audit Qualifications The auditors have issued an unqualified opinion on the statutory financial statements of the Company. e. Training of Board Members/Mechanism for evaluating non-executive directors All the Non-Executive Directors have rich experience and expertise in functional areas and attend various programmes in their personal capacities that keep them abreast of relevant developments. There is no formal system of evaluating individual directors but the audit committee evaluates its performance annually and takes corrective action. f. Whistle Blower policy The Company has setup a whistle blower policy which can be viewed on the Company's website In terms of such whistle blower policy, the employees have been given direct access to the audit committee. REQUEST TO INVESTORS Investors are requested to communicate change of address, if any, directly to the Registrar and Transfer Agents of the Company. As required by SEBI, investors shall furnish details of their respective bank account number and name and address of the bank for incorporating in the dividend warrants to reduce the risk to them of fraudulent encashment. Investors holding shares in electronic form are requested to deal only with their respective depository participant for change of address, nomination facility, bank account number, etc. For and on behalf of the Board Mumbai, 1 March 2007 M G Foster Chairman 14 Esab India Limited Annual Report 2006

16 Corporate Governance Auditor s Certificate on Compliance with the Conditions of Corporate Governance under Clause 49 of the Listing Agreement The Members of Esab India Limited We have examined the compliance of conditions of Corporate Governance by ESAB INDIA LIMITED ( the Company ) for the year ended on 31 December 2006 as stipulated in Clause 49 of the Listing Agreement of the said Company with The Bombay Stock Exchange Limited and The National Stock Exchange of India Limited. The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination was limited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of corporate governance. It is neither an audit nor an expression of opinion on the financial statements of the Company. In our opinion and to the best of our information and according to the explanations given to us, we certify that the Company has complied with the conditions of Corporate Governance as stipulated in the above mentioned Listing Agreements. We state that no investor grievance is pending, for a period exceeding one month against the Company as per the records maintained by the Investor Grievance Committee. The exceptions have been for cases constrained by disputes or legal impediments. We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectiveness with which the management has conducted the affairs of the Company. For BSR & Co. Chartered Accountants S Sethuraman Partner Mumbai, 1 March 2007 Membership No.: To The Members of Esab India Limited Declaration by the Managing Director under Clause 49 of the Listing Agreement I, G Hariharan, Managing Director of Esab India Limited, to the best of my knowledge and belief, declare that all the members of the Board of Directors and Senior Management Personnel have affirmed compliance with the code of conduct for the year ended 31 December Mumbai, 1 March 2007 G Hariharan Managing Director 15 Esab India Limited Annual Report 2006

17 Auditors Report To the Members of Esab India Limited 1 We have audited the attached Balance Sheet of ESAB INDIA LIMITED ( the Company ), as at 31 December 2006, the Profit and Loss Account and also the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audit. 2 We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3 As required by the Companies (Auditor s Report) Order, 2003 ( the Order ) issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956 ( the Act ), we enclose in the annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4 Further to our comments referred to in paragraph 3 above, we report that: (i) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; (ii) In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books; (iii) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; (iv) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Act; (v) On the basis of written representations received from the directors, as on 31 December 2006, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31 December 2006 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Act; (vi) In our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Act, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: a. in the case of the Balance Sheet, of the state of affairs of the Company as at 31 December 2006; b. in the case of the Profit and Loss Account, of the profit for the year ended on that date; and c. in the case of the Cash Flow Statement, of the cash flows for the year ended on that date. For BSR & Co. Chartered Accountants S Sethuraman Partner Mumbai, 1 March 2007 Membership No: Esab India Limited Annual Report 2006